mast image

Impact Investing

IPE special report May 2018

Sections

STP to remove need for trading signatures

UK - Pension fund managers should soon be able to receive instant trading and pricing without needing to re-key data or sign faxes.

A common technology messaging standard has now been established for the institutional pensions market by five firms, which should deliver true straight through processing (STP) of transaction requests, prices and confirmation for the pensions arena.

It is a practice already adopted by the retail financial services industry for trading, but the institutional pensions market has been criticised until now for failing to implement ways to speed up and improve trading.

The technology development is only available in the UK at present but it is believed one Luxembourg-based company is considering adopting the XML (Extensible Markup Language) messaging standards too.

Barclays Global Investors and Legal & General Investment Management have teamed up with Capita Hartshead, Watson Wyatt and Mercer Human Resources to share technology knowledge and create common business practices for downloading pension fund trading data without human intervention.

Other companies are now thought to have expressed an interest in signing up to the common trading standard too.

Through the industry-led initiative, pension funds using the Capita Hartshead, Mercer and Watson Wyatt administration systems will soon be able to trade instantly with BGI and LGIM, and receive immediate prices because all five companies have adopted the ISO 20022 message formatting system.

According to Steve Wallace, head of STP initiatives at Idea Group - one of the firms assisting with the creation of the common standard - while there will be no immediate cost benefit to pension funds because of the huge technology investment made by the five, it should reduce the risks associated with trading as there is less chance of mistakes creeping into trading requests.

That said, it does mean some pension funds may have to re-sign existing mandates with the firms involved, as the new process allows trades to be completed without the need for a confirmation signature, and some mandates have this written into their contracts as a legal requirement.

Instead, firms are talking to pension funds that do business with any of the five companies to agree trades will be submitted and confirmed instantly through the electronic process.

"It removes the possibility of money going into the wrong fund or getting the transaction wrong because we have replaced the fax with an electronic message, read by an electronic machine, " said Wallace.

"It means the client mandate has changed so some companies are having to wait for new contracts to be signed but other companies are able to do this now because there was no requirement for a signature. But prices and valuations come back as quickly as possible so the websites can be updated much sooner. We expect this to create a dynamic in the industry and [trading] will change," added Wallace.

Trading will be handled through SWIFTNet Funds services and the SWIFT network for the transmission of messages to maintain security.

Pilot testing has now been completed and systems are exchanging messages successfully so STP should be rolled out in stages to clients, according to Stuart Heatley, sales and marketing director at Capita Hartshead.

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2435

    Asset class: CLOs.
    Asset region: Global.
    Size: USD 50m.
    Closing date: 2018-05-22.

  • QN-2436

    Asset class: Real Estate - Core Open-ended Real Estate Equity Fund (non-listed).
    Asset region: Asia Pacific.
    Size: Approx. CHF 70-100m per investment.
    Closing date: 2018-05-25.

  • QN-2438

    Asset class: High Yield Bonds.
    Asset region: US.
    Size: USD 300 million.
    Closing date: 2018-05-25.

Begin Your Search Here